Australia: Transfer pricing, changing nature of tax controversy

Australia: Transfer pricing, tax controversy

Tax professionals in Australia, in considering how to assess risk and prepare for potential controversy in light of the changing tax landscape, are focusing on a number of key themes. These include the following:

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The importance of assessing and contrasting positions taken, against positions that the Australian Taxation Office (ATO) Commissioner may adopt to assess the materiality of risk in any perceived differences and to prepare for potential controversy.

In light of subdivision 815-B of the 1997 Act, and the Chevron litigation awaiting judgment, the Commissioner may go to considerable lengths (including potentially obtaining expert evidence) to determine what “arm’s length conditions” might be in “comparable circumstances”. Taxpayers need to be prepared to engage with the Commissioner about this.

Transfer pricing documentation prepared at a high level will not likely provide sufficient defence to an ATO audit. Practically, an organisation needs to revisit its documentation regularly, manage “operational drift” as the business grows, and prepare an “audit ready file” of additional contemporaneous documentation and evidence to support key transactions.

Practical implications of the proposed country-by-country (CbyC) reporting rules, and in particular, the need for a multidisciplinary approach to preparing for them. Taxpayers need to consider the importance of putting in place strategies and resources to obtain, review, and present the required data reliably and discussed the merits of undertaking a “dry run” to identify potential issues ahead of CbyC coming into effect.

There is a need to consider CbyC and potential tax controversy in the broader tax transparency environment and to determine that internal and external stakeholders are managed appropriately.

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